[NFBMT] From the Washington Post: The Final GOP Tax Bill, Explained

[BRUCE&JOY BRESLAUER]

The Washington Post

Analysis  

The final GOP tax bill is complete. Here's what is in it.

By Heather Long  

December 15    

 

Republican holdouts announce support for tax bill

 

After threatening to vote "no" on the GOP tax bill, Sen. Marco Rubio (R-Fla.)
and Sen. Bob Corker (R-Tenn.) pledged their support when the bill was
finalized. (Video: Jenny Starrs/Photo: Melina Mara/The Washington Post) 

 

Republicans were joyful Friday as they finalized their tax plan, bridging
differences between the House and Senate bills and moving another step closer
to getting legislation to President Trump by Christmas.

 

They also appear to have locked down the votes they need to pass the measure
through the House and Senate after Sens. Marco Rubio (R-Fla.) and Bob Corker
(R-Tenn.) pledged their support.

 

Overall, the Tax Cuts and Jobs Act represents the largest one-time reduction
in the corporate tax rate in U.S. history, from 35 percent down to 21
percent. The bill also lowers taxes for the vast majority of Americans, as
well as small-business owners - at least until the cuts expire after eight
years.

 

Last-minute changes to the GOP's big plan give a larger tax break to the
wealthy and preserves certain tax savings for the middle class, including the
student-loan interest deduction, the deduction for excessive medical expenses
and the tax break for graduate students. A change made Friday morning to win
over Rubio expands the child tax credit even further to give more money to
working-class families.

 

Here's a rundown of what's in the final bill. (If you want to read all 505
pages, click here.)

 

What is changing

 

A new tax cut for the rich: The final plan lowers the top tax rate for top
earners. Under current law, the highest rate is 39.6 percent for married
couples earning over $470,700. The GOP bill would drop that to 37 percent and
raise the threshold at which that top rate kicks in, to $500,000 for
individuals and $600,000 for married couples. This amounts to a significant
tax break for the very wealthy, a departure from repeated claims by Trump and
his top officials that the bill would not benefit the rich. The new tax break
for millionaires goes beyond what was in the original House and Senate bills,
with Republicans seeking to ensure wealthy earners in states such as New
York, Connecticut and California don't end up paying substantially higher
taxes as a result of the bill.

 

A massive tax cut for corporations: Starting on Jan. 1, 2018, big businesses'
tax rate would fall from 35 percent to just 21 percent, the largest one-time
rate cut in U.S. history for the nation's largest companies. The House and
Senate bills originally had the big-business tax rate falling to 20 percent,
but Republicans were not able to make the math work to keep the rate that low
and start it right away in the new year, so they compromised by moving the
rate to 21 percent. It still amounts to roughly a $1 trillion tax cut for
businesses over the next decade. Republicans argue this will make the economy
surge in the coming years, but most independent economists and Wall Street
banks predict only a modest and short-lived boost to growth.

 

You can deduct just $10,000 in state, local and property taxes: One of the
most controversial parts of the GOP tax plan is the push to greatly scale
back how much state and local taxes Americans can deduct on their federal
income taxes. Under current law, the state and local deduction (SALT) is
unlimited. In the final GOP plan, people can deduct up to $10,000 (married
couples are also limited to just $10,000). The House initially restricted the
$10,000 deduction to just property taxes, but the final bill allows any state
and local taxes to be deducted, whether for property, income or sales taxes.
The move is widely viewed as a hit to blue states such as New York,
Connecticut and California, and there are concerns it could cause property
values to fall in high-tax cities and leave less money for public schools and
road repairs.

 

Most Americans will pay less in taxes until 2026. The final plan lowers the
tax rates for each income level and nearly doubles the standard deduction
(while also scrapping the personal exemption). The result is that the vast
majority of Americans will see their tax bills drop next year. Trump is fond
of saying the "typical" family will save $2,000, but the reality is the
amount will vary greatly depending up the size, location and circumstances of
each family. The bill will also increase the number of Americans who owe
nothing in taxes from 44 percent today to 47.5 percent after the plan tax
effect on January 1, 2018. But all of the individual tax cuts are scheduled
to go away after 2025. Republicans opted to make tax cuts for families
temporary and reductions for businesses permanent.

 

Working-class families get a bigger child tax credit: Thanks to a late push
by Rubio and Sen. Mike Lee (R-Utah), the child tax credit would be more
generous for low-income families and the working class. The current child tax
credit is $1,000 per child. The House and Senate bills expanded the child tax
credit, with the Senate going up to a maximum of $2,000 per child. The final
bill keeps the $2,000-per-child credit (families making up to about $400,000
get to take the credit), but it also makes more of the tax credit refundable,
meaning families that work but don't earn enough to actually owe any federal
income taxes will get a large check back from the government. Benefits for
those families were initially limited to about $1,100, but through changes
Rubio and Lee pushed for, it's now up to $1,400.

 

The individual health insurance mandate goes away in 2019: Beginning in 2019,
Americans would no longer be required by law to buy health insurance (or pay
a penalty if they don't). The individual mandate is part of the Affordable
Care Act, and removing it was a top priority for Trump and congressional
Republicans. The final bill does not start the repeal until 2019, though. The
Congressional Budget Office projects the change will increase insurance
premiums and lead to 13 million fewer Americans with insurance in a decade,
while also cutting government spending by more than $300 billion over that
period. Some Republicans hope to make other changes to health care to prevent
insurance costs from rising dramatically by the time the repeal kicks in.

 

You can pass your heirs up to $22 million tax-free: In the end, the estate
tax (often called the "death tax" by opponents) would remain part of the U.S.
tax code, but far fewer families will pay it. Under current law, Americans
can pass on up to $5.5 million tax-free (that threshold is $11 million for
married couples). The House wanted to do away with the estate tax entirely,
but some senators felt that was too much of a giveaway to the mega-rich. The
final compromise was to double the threshold, so now the first $11 million
that people pass on to their heirs in property, stocks and other assets won't
be taxed (and yes, that means $22 million for married couples).

 

"Pass through" companies get a 20 percent reduction: Most American businesses
are organized as "pass through" companies in which the income from the
business is "passed through" to the business owner's individual tax return. S
corporations, LLCs, partnerships and sole proprietorships are all examples of
pass-through businesses. In the final GOP bill, the majority of these
companies get to deduct 20 percent of their income tax-free, a large
reduction that mirrors what was in the Senate bill. The changes, however,
expire after 2025. The National Federation of Independent Business initially
opposed the House version, arguing that it didn't do enough for small
businesses. But the NFIB later endorsed the House and Senate plans. Service
businesses such as law firms, doctor's offices and investment offices can
take only the 20 percent deduction if they make up to $315,000 (for married
couples).

 

No corporate "AMT" tax: The final GOP bill gets rid of the corporate
alternative minimum tax, a big relief to the business community. The Senate
included the corporate AMT in its version of the bill, but the House did not.
The corporate AMT makes it difficult for businesses to reduce their tax bill
much lower than 21 percent. CEOs complained that this was a backdoor tax that
would make them less likely to build new plants, buy more equipment and
invest in more research, since the corporate AMT made the tax credits for
those investments essentially null and void.

 

Fewer families will have to pay the individual AMT: The AMT for individuals
started in 1969 as a way to prevent rich families from using so many credits
and loopholes to lower their tax bill to almost nothing. But what started out
as a way to prevent the wealthiest Americans from tax dodging started to hit
more and more families over time. Currently, the AMT kicks in fully for
individuals earning over $120,700 and married couples earning over $160,900.
Under the final Senate bill, that threshold is lifted to $500,000 for
individuals and $1 million for married couples. (Some families in the
$200,000 to $500,000 range will still have to pay AMT, but they will pay far
less than they were before).

 

The mortgage interest deduction gets smaller: Under the current tax code,
taxpayers can deduct any interest they pay on up to $1 million worth of
mortgage loans. House Republicans tried to cap that at $500,000 for new loans
(existing mortgages are unaffected by the plan) but in the final version of
their, Republicans have settled on a $750,000 cap.

 

The final bill costs $1.46 trillion: Republicans decided it would be all
right to go into debt up to $1.5 trillion to fund the tax cut. In the end,
they nearly hit that mark. The official estimate -- released Friday evening
alongside the bill -- came in at $1.46 trillion.

 

What is NOT changing:

 

The bill keeps in place the student loan deduction, the medical expense
deduction and the graduate student tuition waivers. The House bill got rid of
these popular deductions, but the Senate bill kept them, and the final bill
even makes the medical deduction a bit more generous for awhile (dropping the
threshold to take the deduction from expenses over 10 percent of income to
expenses over 7.5 percent of income for 2017 and 2018). After that, the
medical deduction threshold reverts to 10 percent). In the end, Republicans
decided it was better to allow millions of middle-class families to continue
using these breaks if they qualify for them.

 

Retirement accounts such as 401(k) plans stay the same. No changes to the
tax-free amounts people are allowed to put into 401(k)s, IRAs and Roth IRAs.

 

Churches, synagogues, mosques and other nonprofits (the Johnson Amendment
stays in place) can't get political and endorse candidates in elections.
Trump and conservative Republicans wanted to "totally destroy" (Trump's
words) the Johnson Amendment, which has been in place since 1954 and prevents
religious institutions and nonprofits from getting involved in elections via
fundraising or endorsements. The House bill included a repeal of the Johnson
Amendment, but Democrats were able to get the Senate parliamentarian to
determine that including the repeal in the bill didn't comply with the rules
of the Senate.

 

Correction: An earlier version of this post misstated the CBO's estimates for
the number of uninsured Americans in 10 years. It predicts 13 million fewer
people will have health insurance if the individual mandate is lifted.

 

Joy Breslauer, President

National Federation of the Blind of Montana 

Web Site: http://www.nfbofmt.org <http://www.nfbofmt.org/> 

 

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